Research

Job Market Paper

Official Arm-Twisting? Measuring the Federal Reserve’s Use of Moral Suasion [Link]

Abstract: Moral suasion refers to efforts by government officials to directly encourage, urge, or pressure private agents to take certain actions, rather than relying on formal regulations or policies to achieve those outcomes. Narrative evidence suggests that the Federal Reserve has frequently used moral suasion on financial institutions. However, no measure of Fed moral suasion exists, and evidence of its effectiveness is limited. This paper leverages generative AI tools to construct a new measure of Fed moral suasion from financial services industry newspaper articles from 1979 to 2025. The measure indicates that Fed moral suasion was most prevalent in 1980 and during the financial crisis; additionally, it is countercyclical and primarily used to address present risks. Local projections exercises indicate that moral suasion effectively restrained credit growth in 1980 but failed to spur lending during periods of market disruptions. Text-based evidence suggests that moral suasion is more effective when backed by supervisory force and when the interests of financial institutions align with the Fed's goals.

Modeling Distress in Private Credit Direct Lending – with Caio Ferreira and Dmitry Yakovlev 

Abstract: Private credit’s direct lending provides highly leveraged, floating-rate loans to middle-market borrowers, making the sector particularly sensitive to monetary tightening. Rising rates immediately increase debt service costs, high leverage magnifies the strain, and slowing growth can leave operating profits insufficient to cover expenses. Yet, the market remains opaque, with limited borrower-level information available. To quantify potential distress in the direct lending ecosystem, we model a synthetic portfolio of direct lending loans using simulated leveraged buyouts of U.S. small-cap firms. Calibrated on recent data and stress scenarios, the analysis shows resilience under moderate shocks but significant vulnerabilities in deeper downturns, with subordinated instruments being most exposed. This framework helps quantify risks and informs policymakers’ assessments of a fast-growing but opaque market.

Borrowing Constraints, Markups, and Misallocation – with Huiyu Li, Chen Lian, and Yueran Ma [NBER Working Paper]

Abstract: We document new facts that link firms' markups to borrowing constraints: (1) less constrained firms within an industry have higher markups, especially in industries where assets are difficult to borrow against and firms rely more on earnings to borrow; (2) markup dispersion is also higher in industries where firms rely more on earnings to borrow. We explain these relationships using a standard Kimball demand model augmented with borrowing against assets and earnings. The key mechanism is a two-way feedback between markups and borrowing constraints. First, less constrained firms charge higher markups, as looser constraints allow them to attain larger market shares. Second, higher markups relax borrowing constraints when firms rely on earnings to borrow, as those with higher markups have higher earnings. This two-way feedback lowers TFP losses from markup dispersion, particularly when firms rely on earnings to borrow.